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Economy looks better on Wall Street than Main Street

(Kate Gibson)  The government’s April jobs report brought reassurances that the U.S. economy is picking up speed. Of course that’s not saying a lot — the country’s gross domestic product in the first three months of the year was an anemic 0.2 percent, and some economists even expect it to head into negative territory when the Commerce Department refines that initial estimate.

On Wall Street, the latest labor data was a welcome relief when contrasted to the prior month, and sparked a rally in both stocks and bonds as it showed the economy muddling along after a first-quarter slide.

“I feel a lot better this afternoon than I did yesterday afternoon,” Carl Tannenbaum, chief economist at banking firm Northern Trust, said of the monthly figures from the Labor Department, which had payrolls expanding by 223,000 last month following a revised 85,000 increase in March that amounted to the small payroll gain since June 2012.

“We are likely to have seen the U.S. economy contract during the first three months,” said Tannenbaum, listing the weather, the negative impact on exports, imports and manufacturing of the West Coast port strike, and the contraction in the energy sector as negative influences in the first quarter. But Tannenbaum views the jobs numbers as “fairly reassuring” in indicating the U.S. economy is getting back on track.

The unemployment rate declined to 5.4 percent, the lowest since May 2008.

“The economy is strong enough to post good gains and corporate profits. It’s still an economy where the labor market is tightening,” said David Kelly, chief market strategist, J.P. Morgan Funds.

Kelly also tends to discount the weak pay growth reflected in the employment report — average hourly earnings edged up a meager 0.1 percent in April and are rising at a subpar 2.2 percent on an annualized basis — pointing to other metrics that show a stronger uptick in wages.

“Wage growth is pretty tepid, but what we see is an accounting system that is not keeping pace,” said Kelly, noting that another closely watched measure of employee compensation that includes wages, salaries and benefits, indicates a healthier rise in pay. “The Employment Cost Index, which does include bonus payments, is moving up quite smartly now,” said Kelly of the index, which rose 2.6 percent in the first quarter versus the year earlier.

The take on the latest job numbers was less cheery off Wall Street.

Dean Baker, an economist and co-director of the liberal-leaning Center for Economic and Policy Research, notes that monthly job gains in March and April averaged just over 150,000. Employers have added an average of 194,000 jobs per month this year, a significant decline from from 260,000 in 2014.

“We are looking at an economy that is just not growing that fast, that is creating jobs at nowhere near the pace as the last quarter 2014,” said Baker. “If the economy isn’t good for workers, it’s hard to say it’s a good economy.”